Citi CDO Settlement Includes Hedge Fund Curbs

By Teresa Rivas

A new deal with the regulators will limit Citigroup’s (C) ability to sell investments in hedge funds and private equity, one of the first major firms to get caught up in the SEC’s “bad actor” rule.

As The Wall Street Journal’sGregory Zuckerman and Scott Pattersonwrite, the restrictions are part of a larger settlement from earlier this month, related to Citi’s sale of collateralized debt obligations in 2006 and 2007; although an agreement had been reached in 2011, there were judicial delays.

Those delays are unfortunate for Citi: If the firm had settled earlier it would have avoided the restrictions under the SEC’s “bad actor” rule, which has only been in effect since last year. Citi has indicated that it is working with the SEC to lighten the restriction, but as it stands, Citi needs a waiver from the agency to resume sales.

For now, Citi, which had offered high net worth clients investments in about 40 hedge funds, has been sending out notices to such firms about the restrictions.

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Chris Dieterich has covered the U.S. stock market for The Wall Street Journal and Dow Jones Newswires. He is a graduate of Regis University and the Missouri School of Journalism.